- August 24, 2023 at 12:48 pm #690630Eunice03Participant
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330 Paradigm Co (Dec 2011 amended)
On 1 October 20X2, Paradigm Co acquired 75% of Strata Co’s equity shares by means of a share exchange of two new shares in Paradigm Co for every five acquired shares in Strata Co. In addition, Paradigm Co issued to the shareholders of Strata Co a $100 10% loan note for every 1,000 shares it acquired in Strata Co. Paradigm Co has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
4 Retained earnings
Paradigm Co Strata Co
Add back pre-acquisition loss 6,000
PURP (W2) (600)
Gain (loss) on equity investments* (400) 700
Movement on fair value adjustment (W6) 500
Group share of Strata Co -75% x 11,200
Group retained earnings 34,000
Good day,Please I don’t understand why the 6 months interest on the loan note given as consideration was not removed from the group’s retained earnings.I’ll appreciate if you can explain betterAugust 28, 2023 at 1:40 pm #690828P2-D2Keymaster
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Unless the loan notes have already been recorded, which it looks like they haven’t, then we would need to record the interest on the loan notes issued by the parent. I’m not sure why they haven’t in this instance as there isn’t anything to suggest shouldn’t.
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